World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, July 1, 2010

Just released were the Pending Home Sales for May, the Manufacturing ISM for June, and Construction Spending for May. All were bad.

Pending Home Sales collapsed 30% in one month, the index falling from 110.9 all the way down to 77.6! Here’s Econoday:

HighlightsAfter the plunge in new home sales in May following the expiration of the sale deadline for special homebuyer tax credit, it was no surprise that pending existing home also plummeted. But the size was. Pending home sales dropped 30.0 percent in May, following a 6.0 percent jump in April. Pending sales decreased to a year-on-year fall of 15.9 percent in May, compared to up 22.4 percent in April. By region, pending sales fell 31.6 percent in the Northeast; 32.1 percent in the Midwest; 33.3 percent in the South; and 20.9 percent in the West.

Obviously the plunge was due to the end of the home buyer tax credit – a fine piece of artificial home price manipulation by our government that once again simply pulled demand forward, leaving the cliff that we are falling from now. No, the new legislation to extend the tax credit won’t produce another spike because it only offers the credit to those who already completed their purchase by the end of April. This legislation is heading to Obama’s desk for signature now, here’s CNN:

NEW YORK (CNNMoney.com) -- First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate late Wednesday.

President Obama is expected to sign the bill, which was overwhelmingly approved by the House on Tuesday. The deadline had been June 30.

The bill doesn't help anyone currently shopping for a home. Buyers must have signed a contract by April 30 to qualify for the tax break. At issue is when the deal must be finalized.

Qualified existing homeowners also have until Sept. 30 to close on new homes and receive a tax credit of up to $6,500.

Congress has been trying to pass the extension for the last month, but it got caught up in Washington politics. Only when it was separated from a larger jobs bill did deficit-wary lawmakers sign off on it. The extension will only raise the deficit by $9 million.

An estimated 200,000 people have missed out on the tax credit because they wouldn't have been able to close by the end of business Wednesday. Many are trying to take advantage of short sales, which are complicated deals to complete.

Don’t look for another bounce, and stimulus like this will not be so easy to do again. Proof that they are a waste of money can be seen in the free fall that follows. Look for big changes as the Keynesian monkey pumpers are being discredited by reality. Debt saturation is MECHANICAL, that is what leads to the psychological and the markets then follow.

Construction Spending for May fell from April’s positive 2.7% gain to a negative .2% loss. This was actually a smaller fall than consensus that was looking for -.5%. Construction fell off the cliff already and has simply not recovered. It’s not going to recover, either, until the problem of debt saturation is resolved.

The Manufacturing ISM plunged from 59.7 in April to 56.2 in June. The consensus called for 59. This is yet more confirmation that the economy is slowing very rapidly. Here’s Econoday:

HighlightsThe acceleration in manufacturing cooled but only slightly in June, according to the Institute For Supply Management's composite index which slowed to 56.2 from May's very strong 59.7. The slowdown was led by a more than 7 point decline in new orders to a 58.5 reading that nevertheless indicates a strong month-to-month gain, only a smaller gain than in May. Orders continue to move into backlogs but also at a slower rate. Production slowed but remains very strong at 61.4 while hiring also slowed but also remains strong at 57.8. Delays for deliveries eased with the index down nearly 4 points to 57.3, also consistent with slowing activity.

Manufacturers may be having trouble building inventories as the index is little changed at 45.8. But improvement in the customer inventory index suggests that inventories are not as bare as they were in May. A big 20.5 point drop in prices paid indicates easing month-to-month pressure for inputs, the result of flat energy prices.

A month-to-month base effect is at work in this sample, that is comparisons become more difficult as levels across components rise. Similar readings can be expected in the months ahead as the manufacturing recovery matures.

Again, manufacturing has been decimated and cannot recover to be anything significant as long as the economy is saturated with debt. This is the central banker’s folly. The markets are plummeting and they are going to attempt to use this crisis (of their doing) to further entrench their debt based power throughout the globe. We CANNOT let that happen. We must use this crisis for the people to remove them from power!!! We must produce sovereign money and we must do it in a way that reduces existing debts and derivatives while keeping the overall quantity of money under control. To do this, I don’t see any other way besides accomplishing political reform at the same time. That means separating special interests from government! Financial Reform is not even close to being enough to solve the problem or to keep them from happening again.

Interestingly, the dollar is still plunging today and has broken support at 85 - remember, a loss of confidence occurs swiftly as in a phase transition. Is that occuring now on data like this? Stimulus obviously = FAIL as I've been saying all along that it would.

Oil (left) and gold (right) are correcting hard as well. Gold just convincingly broke its uptrend line - interesting that it is falling as the dollar also falls...

This is negating the hammers I showed this morning on the daily charts and it definitely appears that wave 3 of 3 of 3 (of 1) is well under way. As I look at the length of the prior waves, wave 3 must be at least as long as wave 1 and that means that we are quickly headed down to 1,000 on the S&P at a MINIMUM. The death cross and 860 await, it may not be long.